Lender Nations to Review Strategy on 3rd World Debt

Finance ministers of the United States and its major trading partners gave the go-ahead Friday for significant revisions in their approach to managing the Third World debt problem, but they indicated that any actual changes could be months away.

The ministers, known informally as the Group of Seven, did not make any decisions on what changes to make in the current debt strategy, which calls for banks to step up their lending to debtor countries while Third World governments restructure their economies.

But they did agree to begin exploring new measures designed to help debtor countries reduce the amount of their outstanding debt, stem the outflow of capital from their economies and attract the money and investment that they need to resume robust economic growth.

Although the ministers set no formal target date for any new plan, they indicated that they expect to have serious proposals to consider at their next scheduled meeting in early April. Besides the United States, the group includes Japan, West Germany, Britain, France, Italy and Canada.

Any such action would mark the first major changes in the global debt strategy, as it is called, since 1985. At that time, then-Secretary of the Treasury James A. Baker III launched the so-called Baker Plan, which continues in force today.

The move by the ministers comes in the face of growing political pressure from Latin America for the industrial nations to provide more relief to Third World debtors. Lending to the Third World by commercial banks has slowed to a trickle, partly because the debtors have been slow to make economic reforms.

On Friday, newly inaugurated Venezuelan President Carlos Andres Perez called on Latin American presidents to demand that the industrial nations negotiate in place of banks on Third World debt restructuring. The United States opposes that approach.

The United States, on orders from President Bush, has begun a full-scale review of the current debt strategy and is exploring possible changes in bank regulations, tax laws and accounting regulations to make it easier for banks to write down their Third World loans.

Japan and France have outlined rival plans but Washington opposes them on grounds that, in one way or another, they would use more taxpayer money to reduce Third World debt. France, in particular, wants big governments to set up a fund to guarantee interest payments.

Friday’s meeting of the finance ministers, their first since Sept. 24, was billed as an informal session, and the discussion included a wide range of economic issues. In a departure from its usual practice, the group issued no official pronouncements or statements.

Briefings From Officials

However, senior officials of each of the seven finance ministries involved gave parallel briefings for reporters designed to sound a common theme to governments, financial markets and the general public.

In brief, the ministers said that they:

- Continued unchanged their previous upper and lower limits for the value of the dollar, despite recent fluctuations in the value of the U.S. currency. The seven said that they hope to keep the dollar stable and that they will continue intervening in exchange markets to keep it so.

- Decided no new measures are needed to speed up the gradual reduction of global trade imbalances--the U.S. trade deficit and corresponding West German and Japanese trade surpluses--even though the earlier improvement appears to have flagged.

U.S. officials said Treasury Secretary Nicholas F. Brady reiterated assurances that the Bush Administration is serious about working to reduce the U.S. budget deficit substantially--a point of increasing irritation to U.S. allies, who say it is exacerbating trade problems.

But U.S. officials said Brady “made no pledges” that the Administration would be successful, and the United States apparently did not press Japan and West Germany to take additional steps to further stimulate demand for imports in their countries.

Instead, the ministers said they believe that the trade situation will “continue to improve” without any new policy measures.

- Concluded that despite some resurgence of inflation worldwide, the outlook for the world economy generally is positive and that no major policy changes are needed. Brady said coordination of economic policy among the seven “is continuing.”

The 1 1/2-day meeting was designed to be low-key and uneventful--in contrast to earlier meetings of the group, which have acquired an aura of urgency that have made world currency markets hang on the ministers’ every word.

Earlier, French Finance Minister Pierre Beregovoy told reporters that the seven hope their sessions will “take on even more of a routine nature” in the future.

Visit From Baker, Takeshita

Friday’s session did include one surprise--an unexpected visit by Baker, who now is U.S. secretary of state, and Japanese Prime Minister Noboru Takeshita, who was in town on the last day of a visit to confer with Bush. Officials said Baker and Takeshita--both former finance ministers--dropped in strictly to say hello to their former colleagues and did not join in any deliberations.

In farewell ceremonies Friday, Takeshita underlined his earlier message that Japan wants to play a new, broader role in world affairs, acting jointly with the United States in helping to manage the global economy.

At a luncheon at the State Department, he noted pointedly that Japan “has now reached the position as the ally with economic strength second only to the United States.” He said Tokyo and Washington “should seriously consider, from a global perspective, how we can cooperate.”